The “Disaster Tax Relief and Airport and Airway Extension Act of 2017” was signed into law on September 29th. This Act provides temporary tax relief to victims of Hurricane Harvey, Irma and Maria within the designated disaster areas. Qualified businesses and individuals can take advantage of specific tax credits within the Act.
Eased Access to Retirement Funds
- Qualified victims can take advantage of penalty relief benefits, allowing them to make “qualified hurricane distributions” from the 10% early retirement plan without penalty. “Qualified hurricane distributions” are defined as “any distribution from an eligible retirement plan,” and must not exceed $100,000
- The Act also allows taxpayers within the disaster area to spread out any income inclusion resulting from such withdrawals over a three-year period, beginning with the year that any amount is required to be included.
- Taxpayers can also take advantage of the favorable recontributing rule that allows the amount distributed to be recontributed at any time over a three-year period beginning on the day after the distribution was received.
- Under the new law, qualified hurricane distributions aren’t considered eligible rollover distributions for purposes of the 20% withholding rule.
- Certain re-contribution retirement plan withdrawals for cancelled home purchases or construction also qualify for relief under the Act.
- The Act also eases rules for retirement plan loans, increasing the maximum amount that a participant or beneficiary can borrow from a qualified employer, from $50,000 to $100,000. The Act also removes the “one half of present value” limitation on retirement plan loans and allows for a longer repayment term.
Charitable Deduction Limitations Suspended for Donations Associated with Qualified Hurricane Relief
- The Act temporarily suspends the majority of the limitations on charitable contributions within Code Sec. 170(b).
- Taxpayer contributions will not be taken into account for purposes of applying Code Sec. 170(b) and Code Sec. 170(d) to other contributions.
- Under the new law, taxpayers can take advantage of exceptions from the overall limitation on itemized deductions for certain qualified contributions.
Employee Retention Tax Credit for Employers
- Eligible employers can receive a tax credit that equals 40% of up to $6,000 of “qualified wages” with respect to each “eligible employee” per tax year. According to the Act, “qualified wages” refers to wages paid or incurred by an eligible employer with respect to an eligible employee.
- The maximum credit per employee is $2,400 ($6,000 x 40%)
- Limitations for this rule state that an employee cannot be taken into account more than one time for purposes of the employee retention tax credit.
Eased Casualty Loss
- Taxpayers can benefit from the removal of the 10% limitation, which states that personal casualty losses must exceed 10% AGI to qualify for a deduction.
- The Act also eliminated the current law requirement in which taxpayers must itemize deductions to access this tax relief for losses.
- The new law states that there will be no reduction for taxpayers that are subject to alternative minimum tax (AMT).
- The Act also increases the $100 per-casualty floor to $500 for qualified disaster-related personal casualty losses.
The Act also allows provides taxpayers with ways to benefit from earned income tax credits and child tax credits. Keep in mind that the IRS has also granted extensions of deadlines for taxpayers within the designated disaster areas.
To find out more about the 2017 Disaster Tax Relief Bill and which benefits you qualify for, please contact your Warren Averett Advisor.